Q2 2024 Smith Douglas Homes Corp Earnings Call

August 14, 2024

Kayla: Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Homes second quarter of 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Operator: At this time, I would like to welcome everyone to the Smith Douglas Homes second quarter of 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star and 1.

Kayla: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star and 1.

Kayla: I would now like to turn the call over to Joe Thomas, senior vice president of accounting and finance. You may begin.

Operator: I would now like to turn the call over to Joe Thomas, Senior Vice President of Accounting and Finance. You may begin. Good morning and welcome to Smith Douglas's earnings conference call. We issued a press release this morning outlining our results for the second quarter of 2024, which we will discuss on today's call and can be found on our website at investors.smithdouglas.com or by selecting the investor relations link at the bottom of our homepage.

Kayla: [inaudible]

Operator: Please note this call will be simultaneously webcast on the Investor Relations section of our website. Before this call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating goals and performance, are forward-looking statements. Actual results could differ materially from such statements due to known and unknown risks, uncertainties, and other important factors as detailed in the company's SEC filing. The company undertakes no duty to update these forward-looking statements.

Joe Thomas: Please note this call will be simultaneously webcast on the investor relations section of our website.

Speaker Change: Before this call begins, I'd like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating goals and performance, are forward-looking statements.

Speaker Change: Actual results could differ materially from such statements due to known and unknown risks, uncertainties, and other important factors as detailed in the company's SEC filings.

Speaker Change: Acceptance required by law, the company undertakes no duty to update these forward-looking statements.

Joe Thomas: Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC file. Hosting the call this morning are Greg Bennett, the company's CEO and Vice Chairman, and Russ Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Speaker Change: Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC filings.

Speaker Change: Hosting the call this morning are Greg Bennett, the company's CEO and Vice Chairman, and Russ Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Greg Bennett: Thanks Joe and welcome to the team. As we announced last month, Joe is our new Senior Vice President of Accounting and Finance. Taking over from Aidy Clyde, who has transitioned to a role as division president for the company's newly established Central Georgia Division, Joe comes to us from Bank of America, where he provided investment banking services to a number of clients and played a key role in our initial public offering earlier this year.

Greg Bennett: Thanks, Joe, and welcome to the team. As we announced last month, Joe is our new Senior Vice President of Accounting and Finance.

Speaker Change: taking over from Eddie Clyde, who has transitioned to a role of Division President for the company's newly established Central Georgia Division.

Speaker Change: Joe comes to us from Bank of America, where he provided investment banking services to a number of clients and played a key role in our initial public offering earlier this year.

Greg Bennett: We're thrilled to have Joe as part of the team and expect great things from Eddie in his new operational role. Turning to our second quarter results, Smith Douglas reported pre-tax income of $25.9 million, which translates to $0.40 per diluted share for the quarter.

Speaker Change: We're thrilled to have Joe as part of the team and expect great things from Eddie in his new operational role.

Speaker Change: Turn to our second quarter results, Smith-Douglas reported pre-tax income of $25.9 million, which translates to $0.40 per diluted share for the quarter.

Greg Bennett: We closed 653 homes during the quarter, which is above our stated guidance and represents a 17% increase over the second quarter of 2023, and generated $220.9 million in home closing revenue. Home closing gross margin also came in above guidance at 26.7%. A combination of solid demand, stable pricing, and cost containment resulted in better margin performance than we had forecast. Net new home orders for the quarter came in at 715, representing a 17% year-over-year increase.

Speaker Change: We closed 653 homes during the quarter.

Speaker Change: Which was above our stated guidance and represents a 17% increase over second quarter of 2023 and generated 220.9 million in home closing revenue.

Speaker Change: Home closing gross margin also came in above guidance at 26.7%.

Speaker Change: That's a combination of solid demand, stable pricing, and cost containment resulting in better margin performance than we had forecasted.

Speaker Change: Net new home orders for the quarter came in at 715, representing a 17% year-over-year increase.

Greg Bennett: We continue to experience a favorable operating environment in our markets, highlighted by a low level of existing home inventory, healthy job growth, and stable in-migration. Demand trends were fairly consistent across our divisions, thanks to our new home offerings, which we believe hit the sweet spot of our market in terms of price, customization, and value. It's no secret there's a real need for quality, affordable housing in this country, and we pride ourselves on being a leader and providing solutions to meet these needs.

Speaker Change: We continue to experience a favorable operating environment in our markets highlighted by low level of existing home inventory, healthy job growth, and stable in-migration.

Speaker Change: Demand trends were fairly consistent across our divisions, thanks to our new home offerings, which we believe hit the sweet spot of our market in terms of price, customization, and value.

Speaker Change: It's no secret there's a real need for quality, affordable housing in this country, and we pride ourselves on being leaders and providing solutions to meet these needs.

Greg Bennett: Another aspect of our business we take great pride in and has been spoken about previously as our operational official. Home building is a very competitive industry. Success often comes down to how well you execute. From the very beginning, we instill a culture of discipline and accountability. Smith Douglas We constantly look for ways to improve our operation, from the way we underwrite land deals, to the way we procure labor and materials, to how we build and sell homes.

Speaker Change: Another aspect of our business we take great pride in, and have spoken about previously, is our operational efficiency.

Speaker Change: Home building is a very competitive industry.

Speaker Change: And success often comes down to how well you execute.

Speaker Change: From the very beginning, we instill a culture of discipline and accountability at Smith-Douglas.

Speaker Change: We constantly look for ways to improve our operations.

Speaker Change: From the way we underwrite land deals, to the way we procure labor and materials, to how we build and sell homes.

Greg Bennett: We feel this is one of our main differentiators, and is demonstrated by our cycle time remaining in line with our expectations at approximately 60 days outside of our Houston division, which we continued to successfully integrate into the Smith Douglas operating model, and it fully migrated onto our IT systems. We also feel this efficient cycle time has helped reduce our cancellation rate, which was 11.8% for the second quarter. The final pillar of our operational focus is our landline strategy.

Speaker Change: We feel this is one of our main differentiators.

Speaker Change: and is demonstrated by our cycle time remaining in line with our expectations at approximately 60 days.

Speaker Change: outside of our Houston division which we continued to successfully integrate into the Smith-Douglas operating model.

Speaker Change: and it fully migrated on our IT systems. We also feel this efficient cycle time has helped reduce our cancellation rate, which was 11.8% for the second quarter.

Speaker Change: The final pillar of our operational focus is our land life strategy.

Greg Bennett: We are homebuilders first and foremost, which means we view land as a necessary component of our business rather than something for speculative investing. We also know land and land development are one of the most costly and unpredictable aspects of this business. As a result, we have made a priority to eliminate as much of the land risk of our operations as possible by getting land with option agreements and seeking to take ownership of the land, on as close to a just-in-time basis as possible.

Speaker Change: We are homebuilders first and foremost, which means we view land as a necessary component of our business rather than something for speculative investing. We also know land and land development is one of the most costly and unpredictable aspects of this business.

Speaker Change: As a result, we have made it a priority to eliminate as much of the land risk from our operations as possible by tying up land with auction agreements and seeking to take ownership of lots.

Greg Bennett: At the end of the second quarter, 96% of our unstarted lots were controlled lots or controlled via Option Agree. While this land acquisition strategy can result in higher lot costs in an upwardly trending market, we feel it serves as an insurance policy against potential downturns. It also allows us to deploy our capital more efficiently and generate better returns.

Speaker Change: on as close to a just-in-time basis as possible.

Speaker Change: At the end of the second quarter, 96% of our unstarted controlled lots

Speaker Change: were controlled via option agreement.

Speaker Change: While this land acquisition strategy can result in higher lot costs in an upwardly trending market, we feel it serves as an insurance policy against potential downturns.

Speaker Change: It also allows us to deploy our capital more efficiently and generate better returns.

Greg Bennett: Overall, we feel good about the current state of our operation. We believe we have the right strategy in place in the right markets to allow us to grow our home building operations beyond what they are today. The macro environment remains positive, and there continues to be a real desire for home ownership in this kind of... Our balance sheet is in great shape, and we have solid momentum as we head into the second half of the year.

Speaker Change: Overall, we feel good about the current state of our operations.

Speaker Change: We believe we have the right strategy in place in the right markets to allow us to grow our home building operations beyond what they are today.

Speaker Change: The macro environment remains positive and there continues to be a real desire for home ownership in this country.

Speaker Change: Our balance sheet is in great shape and we have a solid momentum as we head into the second half of the year. As a result, we believe we are well positioned to achieve our goals for this year and beyond.

Greg Bennett: As a result, we believe we are well positioned to achieve our goals for this year and beyond. With that, I'd like to turn the call over to Russ, who will provide more detail on our performance this quarter and give an update on our outlook for the year. Thanks, Greg.

Speaker Change: With that, I'd like to turn the call over to Russ who will provide more detail on our performance this quarter and give an update on our outlook for the year.

Russ Devendorf: I'm going to highlight some of our results for the second quarter and conclude my remarks with our expectations and outlook for the third quarter and full year of 2024. As Greg mentioned, we finished the second quarter with $220.9 million of revenue on 653 closings for an average sales price on closed homes of $338,000. Our gross margin was 26.7%, and SG&A was 14.4% of revenue, which includes a true increase for annual incentive bonuses that accounted for 30 basis points of the total.

Russ Devendorf: Thanks, Greg. I'm going to highlight some of our results for the second quarter and conclude my remarks with our expectations and outlook for the third quarter and full year for 2024.

Russ Devendorf: As Greg mentioned, we finished the second quarter with $220.9 million of revenue on 653 closings for an average sales price on closed homes of $338,000.

Russ Devendorf: Our gross margin was 26.7 percent and SG&A was 14.4 percent of revenue, which includes a true up for annual incentive bonuses that accounted for 30 basis points of the total.

Russ Devendorf: Pre-tax income was $25.9 million, with net income of $24.7 million for the quarter. Given the nature of our UPSC organizational structure, our reported net income reflects an effective tax rate of 4.4% on the face of our income statement. This income tax expense is primarily attributable to the income related to the 17.3% economic ownership of our public shareholders that is held by Smith Douglas Homes Corp. in Smith Douglas Holdings, LLC.

Russ Devendorf: Pre-tax income was $25.9 million with net income of $24.7 million for the quarter.

Russ Devendorf: Given the nature of our OEPSI organizational structure, our reported net income reflects an effective tax rate of 4.4% on the face of our income statement.

Speaker Change: This income tax expense is primarily attributable to the income related to the 17.3% economic ownership of our public shareholders that is held by Smith Douglas Homes Corp. in Smith Douglas Holdings, LLC.

Russ Devendorf: Our adjusted net income, which is a non-gap measure that we believe is useful given our organizational structure, is $19.4 million for the quarter and assumes a 25% blended federal and state effective tax rate as if we had 100% public ownership operating as a subchapter C corporation. We believe adjustment at income is a useful measure because it allows management investors to evaluate our operating performance and comparability more effectively to industry peers that may have a more traditional organizational texture. You can find more information about our structure and income taxes in the footnotes of our financial reports.

Speaker Change: Our adjusted net income, which is a non-gap measure that we believe is useful given our organizational structure, is $19.4 million for the quarter and assumes a 25% blended federal and state effective tax rate as if we had 100% public ownership operating as a subchapter C corporation.

Speaker Change: We believe Adjusted Net Income is a useful metric because it allows management and investors to evaluate our operating performance and comparability more effectively to industry peers that may have a more traditional organizational and tax structure.

Speaker Change: You can find more information about our structure and income taxes in the footnotes of our financial statements.

Russ Devendorf: Our net income for the quarter included a one-time charge of $1.2 million related to a purchase accounting adjustment for the true-up of the expected earn-out payment related to our Devon Street acquisition that will be paid early next year. This expense is included in other expenses on our income statement. We finished the first quarter with over 15,800 total controlled locks, an increase of 81% over the second quarter of 2023 and just over 12% from the first quarter of this year. Our Corporate Investment Committee, which meets every week to review and approve new land deals, continues to remain busy as we focus on increasing market share and driving scale throughout our existing footprint.

Speaker Change: Our net income for the quarter included a one-time charge of 1.2 million related to a purchase accounting adjustment for the true up of the expected earn out payment related to our Devon Street acquisition that will be paid early next year.

Speaker Change: This expense is included in other expenses on our income statement.

Speaker Change: We finished the first quarter with over 15,800 total controlled lots, an increase of 81% over the second quarter of 2023, and just over 12% from the first quarter of this year.

Speaker Change: Our Corporate Investment Committee, which meets every week to review and approve new land deals, continues to remain busy as we focus on increasing market share and driving scale throughout our existing footprint.

Russ Devendorf: We expect our lot supply to stay within a targeted range between 3.5 to 5.5 years of supply calculated based on our forecasted closings over a rolling 12-month period. We finished the second quarter with 1,173 homes in backlog, with an average selling price of $345,000 and an expected gross margin on those homes of approximately 26%. We finished the quarter operating out of 75 active selling communities versus 70 at the end of the first quarter.

Speaker Change: We expect our lot supply to stay within a targeted range between 3 1?2 to 5 1?2 years of supply.

Speaker Change: calculated based on our forecasted closings over a rolling 12-month period. We finished the second quarter with 1,173 homes in backlog with an average selling price of $345,000 and an expected gross margin on those homes of approximately 26 percent.

Speaker Change: We finished the quarter operating out of 75 active selling communities versus 70 at the end of the first quarter. Looking at our balance sheet, we ended the quarter with approximately $17 million of cash and no borrowings under our $250 million revolving credit facility and $344.6 million of total members' and stockholders' equity.

Russ Devendorf: Looking at our balance sheet, we ended the quarter with approximately $17 million of cash and no borrowings under our $250 million revolving credit facility and $344.6 million of total members and stockholders equity. Our debt to book capitalization was 1.1%, and our net debt to net book capitalization was negative 4.1%.

Speaker Change: Our debt to book capitalization was 1.1%, and our net debt to net book capitalization was negative 4.1%.

Russ Devendorf: We had approximately $220 million available on our unsecured credit facility and are well positioned to execute on our growth strategy, as Greg previously mentioned. Now, I'd like to summarize our outlook for the third quarter and full year of 2024. We anticipate our third quarter home closings to finish between 725 and 775 homes at an average sales price between $340,000 and $345,000, with gross margin in the range of 26 to 26.5%. For the full year 2024, we are projecting total home closings between 2,650 and 2,800 homes, an increase of 50 closings to the low end of our prior guidance.

Speaker Change: We had approximately $220 million available on our unsecured credit facility and are well positioned to execute on our growth strategy as Greg previously mentioned.

Speaker Change: Now I'd like to summarize our outlook for the third quarter and full year for 2024.

Speaker Change: We anticipate our third quarter home closings to finish between 725 and 775 homes at an average sales price between $340,000 and $345,000, with gross margin in the range of 26 to 26.5%.

Speaker Change: For the full year 2024, we are projecting total home closings between 2650 and 2800 homes, an increase of 50 closings to the low end of our prior guidance.

Russ Devendorf: We expect our average selling price to range between $339,000 and $343,000 and our home clothing gross margin to finish between 26% to 26.75%, which is a 25 basis point increase over the low end of our prior guide.

Speaker Change: We expect our average selling price to range between $339,000 to $343,000 and our home closing gross margin to finish between 26% to 26.75%, which is a 25 basis point increase to the low end of our prior guidance.

Operator: Additionally, we continue to expect our SG&A expense ratio to be in the range of 13.75 and 14.25 percent for the full year, which includes approximately 420 basis points for internal and external sales. We believe the primary risk to our projections is around our ability to maintain sales pace and bring our new communities and lots online. As I have mentioned on prior calls, we continue to see some delays with municipalities on permitting and planning.

Speaker Change: Additionally, we continue to expect our SG&A expense ratio to be in the range of 13.75 and 14.25 percent for the full year, which includes approximately 420 basis points for internal and external sales commissions.

Speaker Change: We believe the primary risk to our projections are around our ability to maintain sales pace and bring our new communities and lots online. As I have mentioned on prior calls, we continue to see some delays with municipalities on permitting and plants.

Operator: Macroeconomic factors, primarily around jobs, inflation, and interest rates, could also have unforeseen impacts on our numbers. With that, I'd like to turn the call over to the operator for instructions on Q&A. At this time, I would like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad.

Speaker Change: Macroeconomic factors, primarily around jobs, inflation, and interest rates, could also have unforeseen impacts to our numbers.

Speaker Change: With that, I'd like to turn the call over to the operator for instructions on Q&A.

Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Our first question comes from the line of Michael Rehot with JPMorgan. Your line is open.

Operator: Our first question comes from the line of Michael Rehot with J.P. Morgan. Your line is open. Hi. Thank you for taking my questions. This is Andrew Azeon on behalf of Mike.

Michael Rehot: Hi, thank you for taking my questions. This is Andrew Azeon for Mike. I was just hoping to maybe get some more granularity and an update on community count growth and how you're thinking about it as we go through the year and maybe any initial thoughts for next year. Thank you.

Greg Bennett: I was just hoping to maybe get some more granularity and an update on community account growth and how you're thinking about it as we go through the year and maybe any initial thoughts for next year. Thank you. Andrew, yeah, from a community count perspective, and I think we've stated this before, we expect to end somewhere, you know, maybe two or three more communities higher than where we are at the end of the quarter, you know, somewhere in the 70, probably 76 to 79, 80 range. So we'd expect it to grow a little bit. I mean, there are some communities that are coming offline.

Michael Rehot: Andrew, yeah, from a community count perspective and I think we've stated this before we expect to and somewhere you know maybe two or three more communities higher than where we're at at the end of the quarter.

Andrew: You know, somewhere in the 70 probably 76 to 79 80 range. So we'd expect it to to grow a little bit. I mean, it's there's some communities that are coming offline.

Greg Bennett: Douglas Homes, CFP®, Financial Planner & Investment Advisor Please see the complete disclaimer at https://sites.google.com or at www.sites.google.com. What kind of sales and closings for next? Thanks, Russ. And then maybe if we could drill down a little bit on your demand trends over the last few months, any kind of progression you can give us or how the sales page is coming through the door, maybe versus your expectations. Yeah, I'll take that one.

Andrew: just you know from exceeding sales and then we're hoping to again bring some of our communities you know online you know on time or a little bit faster you know we are experiencing as I mentioned some

Andrew: Some plat delays, but so that's where we would expect And then into next year. We haven't really provided any guidance yet, but you know maybe on the next quarter we'll we'll give some updates on communities as well as Kind of sales and closings for next year

Andrew: Thanks Russ. And then maybe if we could drill down a little bit on your demand trends over the last few months, any kind of progression you can give us or how the sales pace is coming through the door maybe versus your expectations.

Greg Bennett: Our current trends are, you know, probably slightly off from typical seasonality. We're still seeing a lot of demand. The last few weeks have been good, although, you know, you've got the typical seasons.

Speaker Change: Yeah, I'll take that one. Our current trends are probably slightly off from typical seasonality. We're still seeing a lot of demand. The last few weeks have been good, although

Greg Bennett: With school starting, we just had a storm move through a lot of our coastal, I mean, a lot of our Carolina divisions, and had some interruptions with those sorts of things. Kind of hard to pinpoint some of that, but I think seasonality is maybe just a little soft, but those trends are the same. Yeah, just to add on to that, as Greg mentioned, we also had, you know, Houston got hit pretty hard with a storm during the quarter.

Speaker Change: You know, you've got the typical seasons with school starting, we just had a storm move through a lot of our coastal, I mean a lot of our Carolina divisions, and had some interruptions with those sorts of things, so it's kind of

Speaker Change: Kind of hard to pinpoint some of that, but I think seasonality is maybe just a little soft, but those trends are the same.

Speaker Change: Yeah, just to add on to that, as Greg mentioned, we also had, if you remember, Houston got hit pretty hard.

Greg Bennett: But as you would expect, I mean, you can see absorptions trended down a little bit. When you looked at our monthly net sales through the quarter, April and May were actually about flat in terms of their sales.

Speaker Change: with a storm during the quarter, but as you would expect, I mean, you can see absorptions trended down a little bit.

Speaker Change: When you looked at our monthly net sales through the quarter, April and May were actually about flat in terms of their sales. I think we were at 246.

Russ Devendorf: I think we were at, you know, 246 and 253 in May, and then June tailed off a bit, you know, for the balance. So we, again, that was, that's kind of your typical seasonality. But also, I think there were, you know, some weather factors in there. And your next question comes from the line of Rafay Jadraus with Bank of America. Your line is open. Hi, good morning. It's Ray.

Speaker Change: 253 in May, and then June tailed off a bit, you know, for the balance. So we, again, that was, that's kind of your typical seasonality, but also I think there was, you know, some weather factors in there.

Rafe Jadrosich: And your next question comes from the line of Raffaele Jadraus with Bank of America. Your line is open.

Russ Devendorf: Thanks for taking my my question. Um, I wanted to ask about just on Devon Street in Houston. Can you talk a little bit about what the margins are for that division compared to the legacy business and how you're seeing the progress there in terms of integrating. Yeah, so to take the last part of it, integration is going as well as we could have expected. I think, as we mentioned last quarter, we continued to kind of migrate systems, getting them into the Smith Douglas way of doing business, and that has continued.

Rafe Jadrosich: Hi, good morning. It's Ray. Thanks for taking my question. I wanted to ask on just on Devon Street.

Ray: In Houston, can you talk a little bit about what the margins are for that division compared to sort of the legacy business and how you're seeing the progress there in terms of integrating them?

Speaker Change: Yeah, so to take the last part of it, integration is going as good as we could have expected. I think as we mentioned on last quarter, we had continued to

Speaker Change: kind of migrate systems, getting them into the Smith-Douglas way of doing business, and that has continued. I would, I think as of today, we are totally

Russ Devendorf: I think as of today, we are totally 100% migrated onto our system. We've had our team meetings out there. So again, we've continued to... We've turned over the brand, right? So the brand was turned over pretty early.

Speaker Change: 100% migrated onto our system. We've had our team meetings out there. So again, we've continued to... We've turned over the brand, right? So the brand was turned over pretty early.

Russ Devendorf: We are building out some of the legacy homes and floor plans, but we've already started to integrate our models. We're doing more of the Smith Douglas marketing, and CRM. So everything's on track and really a shout out to that team. I mean, they've been phenomenal.

Speaker Change: We are building out some of the legacy homes, floor plans, but we've already started to integrate our models. We're doing more of the Smith Douglas marketing, CRM, so everything's on track.

Russ Devendorf: I think maybe we've lost one person in the last year. So we just hit our one year anniversary, but an extremely, extremely great team. And it's been a great acquisition for us, and I think they're going to exceed the closings that we had projected for them this year. And then just in terms of margins, as good as we could have expected as well. They're hitting the mid 20s, and 25% gross margin. And I think that's consistent with their legacy business and probably a little bit higher than we would have expected, to be honest. I think because we were going to try and push a little more volume than they had done in the past. And we thought that was going to come a little more at the expense of margin, but yeah, it's been good. The first half of the year, the first quarter, was great.

Speaker Change: And, you know, really a shout out to that team. I mean, they've been, you know, phenomenal. I think maybe we've lost.

Speaker Change: One person, you know in the last year, so we just hit our one-year anniversary, but extremely extremely great team and It's it's been a great acquisition for us and and I think they're going to exceed

Speaker Change: you know, the closings that we had projected for them for this year, and then just in terms of margins,

Speaker Change: As good as we could have expected as well, they're hitting the mid-20s, you know, 25%, you know, gross margin.

Speaker Change: I think that's consistent with their legacy business and probably a little bit higher than we would have expected, to be honest, I think, because we were going to try and push a little more volume than they had done in the past, and we thought that was going to come a little more at the expense of margin.

Speaker Change: Yeah, it's been good. The first half of the year, the first quarter was great. Sales and demand was great, but I also think, again, they followed a little bit of the typical seasonal pattern in the second quarter. But yeah, it's going well.

Russ Devendorf: Sales and demand were great, but I also think they followed a little bit of the typical seasonal pattern in the second quarter, but yeah, it's going well. That's really helpful. You raise the low end of the gross margin outlook. What's driving that increase? And what are you assuming for stick and brick costs and land inflation for the second half of the year? Yeah, so we raised it because margins have been coming in better for our sales in the second quarter. So it's just really a function of how we've been able to raise prices in excess of cost inflation, and that's really more on the direct cost side.

Speaker Change: That's really helpful. And then you raised the low end of the gross margin outlook. What's driving that increase and what are you assuming for stick-and-brick costs and land inflation for the the second half of the year?

Speaker Change: Yeah, we so so we raised it because margins have been coming in better for for our sales

Speaker Change: in second quarter so it's just really a function of we've been able to to raise prices in excess of

Russ Devendorf: You know, our land cost is really what's driving, year over year land cost is what's driving the margin erosion, right? I think our land cost, maybe it's up about 300 basis points as a percentage revenue versus last year. But that's the big driver.

Speaker Change: cost inflation and it's really more on the on the direct cost side. You know our land cost is is really what's driving you know year-over-year land cost is what's driving the margin erosion right I think our land costs

Speaker Change: Maybe it's up about 300 basis points as a percentage revenue versus last year

Russ Devendorf: I don't have the percentages in front of me. I mean, maybe, you know, we can talk offline, but it's all in the land costs, which is driving that margin erosion. But as I mentioned, our margin and backlog is about 26%. So through the first half of the year, I think we're about 26 and a half percent through the first six months. And with backlog at 26, yeah, I think, you know, that 26 to 26.75 is a pretty, pretty safe ranking. Thank you, that's helpful. And your next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open.

Speaker Change: But that's the big driver. I don't have the percentages in front of me. I mean, maybe, you know, we can talk offline.

Speaker Change: But it's all in the land costs, which is driving that margin erosion. But as I mentioned, our margin in backlog is about 26%.

Speaker Change: Through the first half of the year, I think we were, what, 26 and a half percent through the first six months, and with backlog at 26, yeah, I think, you know, that 26 to 26.75 is a pretty safe range.

Speaker Change: Okay, thank you. That's helpful. Sure.

Speaker Change: And your next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open.

Russ Devendorf: Hey, thanks for taking my questions. Russ, maybe we'll just follow up on that comment on backlog margin. Let me think, coming out of the gate, you've been giving a range, plus or minus, around where your current backlog margin sits, and if I heard you correctly, or if your current backlog margin is at 26, you're guiding 26 to 26 and a half percent for 3Q. So you're not really necessarily assuming incremental erosion at the low end; maybe just help us understand kind of how you're thinking through whether it's mix or otherwise what's going to deliver in 3Q versus that backlog margin. Yes, it's more mixed.

Mike Dahl: Hey, thanks for taking my questions. Russ, maybe just to follow up on that comment on backlog margins, I think coming out of the gates, you know, you've been giving a range, you know, plus or minus.

Speaker Change: around where your current backlog margin sits and if I heard you correctly or if your current backlog margins at 26 you're guiding 26

Speaker Change: to 26.5% for 3Q, so you're not really necessarily...

Speaker Change: assuming and like incremental erosion at the low end maybe just help us understand kind of how you're thinking through you know whether it's mix or otherwise what's going to deliver in 3q versus that backlog margin

Russ Devendorf: I think you've got, you know just the way it's trending, I think you've got a little bit higher gross margin probably hitting in Q3 than Q4 if I recall correctly, so I think it's just more of a mix. And you know we're pretty baked in terms of kind of trying to get to that low end closing number. When you look at our closings plus our backlog scheduled to close this year, and that assumes that you know nothing falls out right from a cancellation standpoint. I mean, we feel pretty good about getting to that 2650.

Speaker Change: Yeah, it's more mix related. I think you've got ...

Speaker Change: Just the way it's trending, I think you've got a little bit higher gross margin probably hitting in Q3 than Q4, if I recall correctly, so I think it's just more of a mix.

Speaker Change: um

Speaker Change: And we're pretty baked in terms of trying to get to that low-end closing number. When you look at our closings plus our backlog scheduled to close this year,

Speaker Change: and that assumes that, you know, nothing falls out, right, from a cancellation standpoint. I mean, we feel pretty good about getting to that 2650. You know, we're getting to a point in the year where...

Russ Devendorf: You know, we're getting to a point in the year where, you know, maybe we've got another month or so of where we can sell and close the year. And, you know, we kind of, we just need to see how the margin trends, you know, continue. You know, we've got some properties in the ground that could also close this year. And, you know, part of that is just, you know, how much discounting are we going to have to do, maybe, to move some of those properties. So that's why, you know; that's the reason for the range.

Speaker Change: You know, maybe we've got another month or so of where we can sell and close in the year. And, you know, we kind of, we just need to see how the margin trends, you know, continue. You know, we've got some specs.

Speaker Change: in the ground that also can can close this year and

Speaker Change: you know part of that's just you know how much discounting are we going to have to do maybe to move some of those specs so that's that's why you know that's that's the reason for the range you know even though we're at you know 26 and a half for the year and backlogs at 26 I think there's some mix in there and then

Russ Devendorf: You know, even though we're at, you know, 26 and a half for the year and backlogs at 26, I think there's some mix in there. And then, you know, it just depends on, you know, maybe what we can move some of these specs at and what some of the demand trends in the next month will look like and how we can hold margin. Okay, that's helpful.

Speaker Change: It just depends on maybe what we can move some of these specs at and what some of the demand trends in the next month will look like and how we can hold margin.

Greg Bennett: And then back to the comments that both you and Greg made around the demand trends, I want to make sure I'm clear. I think, Greg, you talked about current trends below typical seasonality. Then, Russ, when you added your comments, you talked more specifically about April, May, and June. So, I wanted to clarify, Greg, when you're talking about current trends, is that... you know, what you've seen in July and August to date that you've referenced still being below typical seasonality?

Speaker Change: Okay, that's helpful. And then back to the comments that both you and Greg made around the demand trends, I want to make sure I'm clear. I think, Greg, you talked about current trends.

Speaker Change: below typical seasonality. Then, Russ, when you added your comments, you talked more specifically about April, May, and June. So, I wanted to clarify, you know, Greg, when you're talking about current trends, is that

Speaker Change: You know what you've seen in July and August to date that you've referenced still being below typical seasonality

Greg Bennett: That's correct. Yeah, we're back closer to season out, but we're we. So our leading indicators are our traffic and our lead generation, and it's slightly below what we would expect. The peak season now, and that is July and August.

Greg Bennett: That's correct. Yeah, we're back closer to seasonality, so our leading indicators is our traffic and our lead generation, and it's slightly below where we would expect typical seasonality.

Speaker Change: and that is current July and August numbers.

Russ Devendorf: Okay. I appreciate that. Thank you both.

Speaker Change: Okay, appreciate that. Thank you both. Yep. Thanks. Bye

Greg Bennett: Yep. Thanks. And your next question comes from the line of Sam Reed with Wells Fargo. Your line is open.

Speaker Change: And your next question comes from the line of Sam Reid with Wells Fargo. Your line is open.

Greg Bennett: Thanks guys. I wanted to do a quick follow-up on Devon Street here. Just maybe talk through where cycle times today sit in Houston relative to your current core operations and then maybe kind of help us bridge sort of a path to getting to something more consistent with your core business. Thanks.

Sam Reid: Thanks guys. I wanted to do a quick follow-up on Devon Street here. Just maybe talk through where cycle times today sit in Houston relative to your current core operations and then maybe kind of help us bridge sort of the path to getting to something more consistent with your core business. Thanks.

Greg Bennett: Sam, thanks for the question. We, we, We're benchmarking, right now, all over, our friends and our cycle time in Houston. We had some legacy, some of the master plan communities where we had a little harder time changing product over, but we've just got them plugged in over the last month or so, and we've got all of the units now in the system, and probably over the next couple of weeks, we'll be able to benchmark all the cycle times there. You know, if I'm guessing without putting numbers on it, we're probably in the mid-high 70s today.

Sam Reid: Yeah, so, uh, Sam, thanks for the question.

Speaker Change: We're benchmarking right now all of our.

Speaker Change: Our friends and our soccer time in Houston week.

Speaker Change: We had some legacy Some of the master plan communities where we had a little part of time changing product over that. We've just got plugged up over the last

Speaker Change: You know month or so, and we've got all of the units now in the system and probably over the next couple of weeks We'll be able to benchmark all the cycle times there there there

Speaker Change: You know if I'm guessing without putting numbers on it, we're probably in the mid high 70s today

Greg Bennett: We're doing a great job there on cycle time, but we've now got schedules in place on everything, and our team's in place. We've launched those meetings. Tom and I have been in person at their trade meetings, and, as Russ said, things are going great with all the transitions, so now it's a matter of being able to set benchmarks moving forward. We would hope, by the end of the year, to be near our numbers that, if we look across all of our footprints today, we're in the high 50s, 58, 59. A sample time. No thanks, Greg, that's helpful.

Speaker Change: We're doing a great job there on cycle time, but we've now got schedules in place on everything and

Speaker Change: Our team's in place. We've launched those meetings. Tom and I have been in person there to their trade meetings.

Speaker Change: As Russ said, things are going great with all the transitions, so now it's a matter of being able to set benchmarks moving forward, we would hope.

Speaker Change: By the end of the year, to be near our numbers that if we look across all of our footprints today, we're in that high 50s, 58, 59 day cycle time.

Greg Bennett: And then one question I had just on mix here, I know you guys predominantly build to order, but there is some spec in your business, just kind of curious how that spec mix looks into the second half of the year. Just mindful of potential incentives on those spec orders, so curious what the mix looks like. Thanks.

Speaker Change: No, thanks, Craig. That's helpful. And then one question I had just on mix here. I mean, I know you guys predominantly build to order, but, you know, there is some spec in your business. You know, just kind of curious, you know, kind of how that spec mix looks.

Speaker Change: into the second half of the year. Just mindful of potential incentives on those specs. So curious what the mix looks like. Thanks.

Greg Bennett: The, you know, our spec, so we've always had some spec, and I don't know that it's that much different from typical. So, you know, we operate and focus like a manufacturing business. We make more; we lose less at full capacity. If we hit a stated slot and we don't have a pre-sale ready, we'll start a home. I will. As a percent of WHIP, I think we are at about 3% of our homes. Or at drywall, that is a spec home.

Speaker Change: The, you know, our spec.

Speaker Change: So we've always

Speaker Change: Had some specs

Speaker Change: And I don't know that it's that much different than typical. So, you know, we operate and focus as a manufacturing business. We make more and we lose less in full capacity. If we hit a stated slot and we don't have a pre-sale ready, we'll start a home.

Speaker Change: I will.

Speaker Change: As a percent of WHIP, I think we are at about

Speaker Change: three percent of our homes.

Greg Bennett: So it's a small, small sampling. I think most of those we are able to get moved and sold prior to, and we call it a line in the sand. When we look at around drywall that we can still convert that cell, it still closes on its original schedule time.

Speaker Change: or at drywall.

Speaker Change: That are that are spec home, so it's a small small sampling I think the most of those we are able to get moved and sold prior to and we call it a line in the sand When we look at around drywall that still we we can convert that cell it still Closes on its original schedule time

Russ Devendorf: Yeah, the other thing, Sam, I would add is that sitting here today, I'm just looking at the numbers. We've got, as of this week, we only had 45 finished specs, and that was pretty evenly distributed through our divisions. We track spec count by community every week.

Speaker Change: Yeah, the other thing, Sam, I would add is, in sitting here today, I'm just looking at the numbers. We've got, as of this week, we only had 45 finished specs, and that was pretty evenly distributed through our divisions. We track...

Operator: I would like to welcome everyone to the Smith Douglas Homes second quarter of 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press star and one.

Russ Devendorf: We kind of look at that and see what the sales trends are, but to Greg's point, we're trying to keep the machine going, and we'll start adjusting price to meter pace to get, for our teams, kind of that one a day. And then when you look at specs, so the one thing to keep in mind, so specs are up year over year, probably just maybe about, it's about 200 versus last year. Now half of that, more than half of that comes from Houston.

Sam Reid: spec count by community every week. We kind of look at that and see what the sales trends are, but to Greg's point, we're trying to keep the machine up-to-date.

Speaker Change: you know, going and we'll start, you know, adjusting price to meter.

Operator: I would now like to turn the call over to Joe Thomas senior vice president of accounting and finance you may begin.

Speaker Change: you know, pace to get, you know, for our teams kind of that one a day.

Greg Bennett: And then when you look at specs, so the one thing to keep in mind, so specs are up year over year, you know, probably just Maybe about it's about 200 versus last year

Joe Thomas: Good morning and welcome to Smith Douglas's earnings conference call. We issued a press release this morning outlining our results for the second quarter of 2024 which we will discuss on today's call and can be found on our website. At investors.smith.vis.com or by selecting the investor relations link at the bottom of our home page. Please note this call will be simultaneously webcast on the investor relations section of our website. Before this call begins I would like to remind everyone that certain statements made on this call which are not historical facts including statements concerning future financial and operating goals and performance are forward looking statements.

Russ Devendorf: So you've got to remember, Houston's probably more of a spec market, and in that market, primarily because you're competing with, we're competing, I think about 70% of our communities are in master plans, where you've got four or five other builders, and it's just kind of the way you've got to compete there. So we've got a little more spec in Houston. We are, as Greg pointed out, I mean, we're getting them integrated into the Smith Douglas way of doing things.

Greg Bennett: Now, half of that, over half of that comes from Houston, so you've got to remember Houston's probably more of a spec market and in that market, and primarily because you're competing with, we're competing, I think about 70% of our communities are in master plans.

Greg Bennett: where you've got four or five other builders.

Greg Bennett: and it's just kind of the way you've got to compete there. So we've got a little more spec in Houston. We are, as Greg pointed out, we're getting them integrated, the Smith Douglas way of doing things.

Joe Thomas: Actual results could differ materially from such statements due to known and unknown risks uncertainties and other important factors as detailed in the company's SEC filings. Acceptance required by law the company undertakes no duty to update these forward looking statements. Additionally, reconciliation of non-gap financial measures discussed on this call to the most comparable gap measures can be found in our press release located on our website and our SEC filings.

Russ Devendorf: We are focused more on trying to get them a little more pre-sale, but I think specs in Houston are always going to be kind of part of that business when you compare it to our other markets. And, as a thank you,

Speaker Change: we are focused more on trying to get them a little more pre-sale but I think specs in Houston are always going to be kind of part of that business when you compare it to to our other markets.

Greg Bennett: One note to add there too, a spec home for us becomes a spec the day we identify the need to go into permits. So we identify within our system very early if it's got to be a spate because there are a lot of elongated permitting cycles. That's very helpful. Thanks so much.

Speaker Change: And for us, one note to add there too, a spec home for us becomes a spec.

Speaker Change: The day we identify.

Speaker Change: the need to go into permitting.

Speaker Change: So, we identify within our system very early if it's got to be a speck because of a lot of elongated permitting cycles. That's right.

Joe Thomas: Hosting the call this morning or Greg Bennett the company's CEO and vice chairman and Russ Devendorf are executive vice president and CFO.

Speaker Change: No, guys, that's very helpful. Thanks so much. Sure.

Operator: Sure. And your next question comes from the line of Jay McCannless with Wedbos Securities. Your line is open. Good morning, everyone.

Greg Bennett: I'd now like to turn the call over to Greg. Thanks Joe and welcome to the team. As we announced last month Joe is our new senior vice president of accounting and finance.

Speaker Change: And your next question comes from the line of Jay McCandless with Wedbush Securities. Your line is open.

Russ Devendorf: So Russ, talking about gross margin, I think you said it was probably higher in 3Q versus 4Q. I guess, is that all land costs or are you all expecting maybe a little more competitive pressure from some of the larger builders going into year end? Yeah, I mean, that's the growth margin on our closings, right? So a lot of that's just baked in, so it's just kind of the mix and just timing of what's going to close.

Greg Bennett: Taken over from 80 cloud who is transition to a role division president for the company's newly established central Georgia division. Joe comes to us from Bank of America where he provided investment banking services to a number of clients and played a key role in our initial public offering earlier this year. We're thrilled to have Joe as part of the team and expect great things from 80 in his new operational role.

Jay McCandless: Good morning, everyone. So, Russ, talking about the gross margin, I think you said probably higher in 3Q versus 4Q. I guess, is that all land costs, or are you all expecting maybe a little more competitive pressure from some of the larger builders going into year end?

Speaker Change: Yeah, it's I mean, that's the growth margin on on our closings, right? So a lot of that's just baked So it's just kind of mix and and just you know timing of what's going to close and I think that's just a reflection of you Know where we where we've just seen you know, so those closings the margins it's going to close

Russ Devendorf: And I think that's just a reflection of where we've just seen. So those closings, the margin that's going to close in the back half of the year, you think that that was sales that were kind of in the first quarter or in the second quarter. So it's just, I think it's just where we've seen costs, you know, it's just as we move through communities, just in terms of mix, it's, it's mostly land costs. So it's really just kind of, you know, just more timing of what's, what's closing.

Greg Bennett: Turn to our second quarter results. Smith Douglas reported pre-tax income of 25.9 million which translates to 40 cents for delivered share for the quarter. We close 653 homes during the quarter which was above our stated guidance and represents a 17% increase over second quarter of 2023 and generated 220.9 million in home closing revenue. Home closing gross margin also came in above guidance at 26.7%. As a combination of solid demand, stable pricing and cost containment resulting in better margin performance than we had forecasted.

Speaker Change: In the back half of the year, you think that that was sales that was kind of, you know, in the first quarter, in the second quarter, so it's just, I think it's just where we've seen costs, you know, it's just as we move through communities, just in terms of mix, it's mostly land costs, so it's really just

Russ Devendorf: You know, if that answers your question, it's, it's, I don't think you can glean anything from it into what we think our sales necessarily are going to be or kind of what we think in terms of future discounting. That's just more of, you know, what our backlog is showing for sales that we've already made. So, I guess, yeah, that makes sense because I'm assuming that's when mortgage rates were higher, etc.

Speaker Change: kind of.

Speaker Change: You know just more timing of what's what's closing You know if that answers your question, it's it's I don't think you can glean anything into you know how that Translates into what we think our sales necessarily are going to be or kind of what we think in terms of future discounting That's just more

Greg Bennett: Net new home orders for the quarter came in at 715. Representing a 17% year over year increase. We continue to experience the favorable operating environment in our markets highlighted by low level of existing home inventory, healthy job growth, and stable emigration. Demand trends were fairly consistent across our divisions thanks to our new home offerings, which we believe hit the sweet spot of our market in terms of price, customization and value. It's no secret there's a real need for quality affordable housing in this country and we pride ourselves on being leader and provide solutions to meet these needs.

Speaker Change: You know what our backlog is showing for for sales that we've already, you know made

Speaker Change: So what I guess yeah that makes sense because I'm assuming that's when mortgage rates were higher etc you probably need a little more on the buy-down side. I guess as you talk about what you're having to do for incentives now and and what are you seeing from from some of the larger builders?

Russ Devendorf: You probably need to do a little more on the buy-down side. I guess, as you talk about what you're having to do for incentives now and what you're seeing from some of the larger builders. Yeah, I would say, and Greg can jump in too, but it's pretty consistent with what we've seen in the first half of the year or first quarter.

Speaker Change: Yeah, I would say, and Greg can jump in too, but it's pretty consistent with what we've seen in the first half of the year, or first quarter. We're still offering kind of a your-choice incentive.

Russ Devendorf: We're still offering kind of a "your-choice" incentive for our buyers. The incentive percentage hasn't changed too much, and I'd say most have still been taking a credit towards closing costs versus actual buy-downs. We did a forward in one of our markets where we just did a small, maybe a couple million dollar forward contract on buying a rate down, and it took us, I think, a couple months to actually fill it because our buyers were, like I said, taking more of that closing cost incentive. And I believe a lot of folks just feel like, hey, let me take the credit now because, ultimately, they're going to refinance their Good morning.

Greg Bennett: For our buyers, the...

Greg Bennett: Another aspect of our business we take great pride in and it's spoken about previously as our operational efficiency. Home building is a very competitive industry and success often comes down to how well you execute. From the very beginning we instill a cultural discipline and accountability at Smith Douglas. We constantly look for ways to improve our operations. From the way we underwrite land deals, to the way we procure labor and materials, to how we build and sell homes.

Greg Bennett: The incentive, you know, percentage hasn't changed too much and it's.

Speaker Change: I'd say most have still been taking a credit towards closing costs versus actual buy-downs.

Greg Bennett: We did a forward in one of our markets where, you know, we just did a small, you know, maybe couple million dollar forward contract in buying a rate down and it took us, I think, a couple months to actually...

Greg Bennett: to actually fill it because our buyers were, like I said, taking more of that closing cost incentive. And I believe it's, you know, a lot of folks just feel like, hey, let me take the credit now because ultimately I'm going to refi.

Greg Bennett: We feel this is one of our main differentiators and is demonstrated by our cycle time remaining in line with our expectations at approximately 60 days outside of our Houston division, which we continue to successfully integrate into the Smith Douglas operating model and it fully migrated on our IT systems. We also feel this efficient cycle time is helped to reduce our cancellation rate, which was 11.8% for the second quarter.

Greg Bennett: you know, my mortgage in a couple of years, you know, because the expectation is for rates coming down. Yeah, that's accurate, Jerry. Good morning. And I would say, you know, our incentives are

Greg Bennett: And I would say our incentives are currently in the one and a half, two percent range on average. And then just the last question I had thinking about Devon Street in Houston, I guess, given that you've passed the one year mark there, I guess, how comfortable are you with potentially looking at other expansions and do you feel like, with your team, the learnings you've had so far, that you could implement this into another existing organization, or do you feel like you need some more time to evaluate? I think the implementation has gone great, and I don't have any doubt or reservations about how well this is going to continue to go in Houston.

Jerry: You know one and a half two percent range on average currently

Jerry: Thank you very much.

Speaker Change: And then just the last question I had, thinking about Devon Street in Houston, I guess how, given that you've passed the one-year mark there, I guess how comfortable are you with potentially looking at other

Greg Bennett: The final pillar of our operational focus is our land life strategy. We are home builders first and foremost, which means we do land as a necessary component of our business rather than something perspective to investing. We also know land and land development is one of the most costly and unpredictable aspects of this business. As a result we have made it a priority to eliminate as much of the land risk of our operations as possible by tying up land with option agreements and seeking to take ownership of lots on as close to a just-in-time basis as possible.

Speaker Change: expansions and do you feel like

Speaker Change: With our team, the learnings you've had so far that you could implement this into another existing organization, or do you feel like you need some more time to evaluate?

Speaker Change: I think the implementation has gone great and I don't have any doubt or reservations about how well this is going to continue to go at Houston. I think, you know, now is evaluating

Greg Bennett: I think, you know, now is evaluating growth within that market and then the timing for when we may step out and expand beyond Houston there, but there's no, you know, no immediate need to look at any of those types of transactions. I think, as we've stated in the past, our greatest opportunity is in our current divisions and expanding, as we have with our are laying, across all those marks.

Greg Bennett: At the end of the second quarter, 96% of our unstarted controlled lots were controlled via option agreements. While this land acquisition strategy can result in higher lot cost in an upwardly trending market, we feel it serves as an insurance policy against potential downturns. It also allows us to deploy our capital more efficiently and generate better returns.

Speaker Change: you know growth within that market and then a timing for when you know we may may step out and and expand beyond Houston there but there's no you know no immediate

Speaker Change: need to look at any of those types of...

Speaker Change: of transactions. I think, as we've stated in the past, our greatest opportunity is in our current divisions and expanding as we have with our land.

Greg Bennett: Overall, we feel good about the current state of our operations. We believe we have the right strategy in place and the right market still allows to grow our home building operations beyond what they are today. The macro environment remains positive and there continues to be a real desire for home ownership in this country. Our balance sheet is a great shade and we have a solid momentum as we head into the second half of the year. As a result, we believe we are well positioned to achieve our goals for this year and beyond.

Speaker Change: across all those markets.

Greg Bennett: Great. Thanks, guys. Appreciate it. And as a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from the line of Alex Barron with the Housing Research Center. Your line is open. Yes, good morning.

Speaker Change: i

Speaker Change: Okay, great. Thanks guys. Appreciate it.

Speaker Change: Thank you.

Speaker Change: And as a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from the line of Alex Barron with Housing Research Center. Your line is open.

Operator: Thank you, gentlemen. I wanted to ask about the Houston division. You know, orders were $149 in the first quarter, and $98 in the second quarter. Can you talk a little bit about which of those two is more likely to be a run rate right now?

Alex Barron: Yes, good morning. Thank you, gentlemen. I wanted to ask about the...

Greg Bennett: With that, I'd like to start to call over to Russ about more detail on our performance this quarter and give an update on our outlook for the year.

Speaker Change: The Houston division, you know, orders were 149 in the first quarter, 98 in the second quarter.

Speaker Change: Can you talk a little bit about which of those two is more likely to be a run rate right now and what, I guess, what happened from one quarter to the next?

Russ Devendorf: Thanks, Greg.

Russ Devendorf: I'm going to highlight some of our results for the second quarter and conclude my remarks with our expectations and outlook for the third quarter and full year for 2024. As Greg mentioned, we finished the second quarter with 220.9 million of revenue on 653 closings for an average sales price on closed homes of $338,000. Our gross margin was 26.7%, and S-GNA was 14.4% of revenue, which includes a true up for annual incentive bonuses that account for 30 basis points of the total.

Russ Devendorf: And what do I guess happened from one quarter to the next? Yeah, look, I think it's, you know, in Houston; I still think it's kind of seasonal trends. So you know, the first quarter was probably better than we expected, but I think it's just the season, and now you're getting into, you know, the second quarter, you kind of hit the summer months, you know, school starting to get out. So, I can't sit here and say that it wasn't just following a normal trend, so we did see a little bit of an uptick in cancellations in Houston in the second quarter, but I can't say if that's, you know, just, you know, anything more than just a little bit of a blip or just kind of typical.

Speaker Change: Yeah, look, I think it's, you know, in Houston, I still think it's kind of seasonal trends.

Speaker Change: So, you know, the first quarter was probably better than we expected, but I think it just kind of seasoned and now you're getting into, you know, second quarter, you kind of hit summer months, you know, schools starting to get out.

Russ Devendorf: Pre-tax income was 25.9 million, with net income of 24.7 million for the quarter. Given the nature of our up to the organizational structure, our reported net income reflects an effective tax rate of 4.4% on the face of our income statement. This income tax expenses primarily attributable to the income related to the 17.3% economic ownership of our public shareholders that is held by Smith Douglas Homescorp in Smith Douglas Holdings LLC. Our adjusted net income, which is a non-gap measure that we believe is useful given our organizational structure, is 19.4 million for the quarter, and assumes a 25% blended federal and state effective tax rate as if we had 100% public ownership operating as a subchapter seek corporation.

Speaker Change: So, I don't, I can't sit here and say that it wasn't, you know, just following a normal trend. So, we did see a little bit of an uptick in cancellations in Houston in second quarter, but I can't say if that's...

Russ Devendorf: Again, this was our first year, our first, you know, first half year with Houston ourselves, so you know, we're still... Just feeling out the market, seeing how we fit there. But I think everything, like we said, is going real well. Better than we had anticipated, and I think just from our internal projections, as we look for the full year in Houston, I think they're going to exceed our internal projections. Okay, great.

Speaker Change: You know just you know anything more than just a little bit of a blip or just kind of typical again This was our first year our first you know first half year with with Houston ourselves, so You know we're still

Speaker Change: Just kind of you know feeling them feeling feeling out the market seeing seeing kind of how we how we fit there But no, I think everything like we said is going real well

Russ Devendorf: We believe adjusted net income is a useful measure because it allows management investors to evaluate our operating performance and comparability more effectively to industry peers that may have a more traditional organizational tax structure. You can find more information about our structure and income taxes in the footnotes of our financial statements.

Speaker Change: better than we had anticipated, and I think just from our internal projections, as we look for the full year in Houston, I think they're going to exceed our internal projections.

Russ Devendorf: And as far as your land position, I mean, it's been going up pretty, pretty aggressively. Do you feel like you're just seeing opportunities right now, or are you just trying to get ahead of expected growth? Yeah, we're seeing, as I mentioned, our corporate investment committee is very busy; we see anywhere from one to four or five deals a week that the divisions are presenting to us. So, we're very active. The market is still very competitive, but we are getting our fair share of deals.

Speaker Change: Okay, great. And as far as your land position, I mean it's been going up pretty, pretty aggressively. Do you feel like you're just seeing opportunities right now or you're just trying to get ahead of expected growth?

Russ Devendorf: Our net income for the quarter included a one-time charge of 1.2 million related to a purchase accounting adjustment for the true up of the expected earn out payment related to our DevonStreet acquisition that will be paid early next year. This expense is included in other expenses on our income statement.

Speaker Change: Yeah, we're seeing, as I mentioned, our corporate investment committee is very busy. We're seeing, you know, anywhere from one to four or five deals a week that the divisions are presenting to us. So we're very active.

Russ Devendorf: We finished the first quarter with over 15,800 total controlled lobs, an increase of 81% over the second quarter of 2023, and just over 12% from the first quarter of this year. Our corporate investment committee, which meets every week to review and approve new land deals, continues to remain busy as we focus on increasing market share and driving scale throughout our existing footprint. We expect our lot supply to stay within a targeted range between 3.5 to 5.5 years of supply calculated based on our forecasted closings over a rolling 12-month period. We finished the second quarter with 1,173 homes in backlog with an average selling price of 345,000 and an expected gross margin on those homes of approximately 26%.

Speaker Change: The market is still very competitive, but we are getting our fair share of deals. As we mentioned during the roadshow, one of our main goals here with raising the capital is to continue to drive scale.

Russ Devendorf: As we mentioned during the roadshow, one of our main goals here with Raising the Capital is to continue to drive scale through the operations, specifically outside of Atlanta. Atlanta, we're a top three builder in Atlanta, so we've been focusing on... really driving scale in other markets, but we're seeing a lot of great deals in Atlanta.

Speaker Change: through the operations, you know, specifically outside of Atlanta. You know, Atlanta, we're a top three builder in Atlanta, so, you know, we've been focusing on...

Russ Devendorf: I mean, just across the footprint, as we mentioned on the last call, we started pushing up into Chattanooga. So, I think we put another couple of deals under contract in Chattanooga. So, we continue to push north there. Therefore, there's some more opportunity. With the transition, we mentioned Eddie, our VP of finance, that's just transitioned into a central Georgia DP role, a newly created division. So, we're looking to further expand our footprint out from Atlanta into more of middle Georgia.

Russ Devendorf: We finished the quarter operating out of 75 active selling communities versus 70 at the end of the first quarter. Looking at our balance sheet, we ended the quarter with approximately 17 million of cash and no borrowings under our 250 million revolving credit facility and 344.6 million of total members and stockholders equity. Our debt to book capitalization was 1.1%, and our net debt to net book capitalization was negative 4.1%. We had approximately 220 million available on our unsecured credit facility and a well position to execute on our gross strategy as Greg previously mentioned.

Speaker Change: really driving scale in other markets, but we're seeing, you know, a lot of great deals in Atlanta. I mean just across the the footprint as we mentioned on the last call.

Speaker Change: You know, we started pushing up into Chattanooga, so we've put, I think we've put another couple of deals.

Speaker Change: under contract in Chattanooga, so we continue to push.

Speaker Change: push north there so there's some more opportunity. You know, with the transition we just, you know, we mentioned with Eddie, you know, our VP of Finance that's just transitioned into a central Georgia DP role, you know, a newly created division. So we're looking to, you know, further expand our footprint out from Atlanta into, you know, more middle Georgia.

Russ Devendorf: So, these are just more opportunities that we're seeing. So, yeah, we're being opportunistic. And just the last thing I will say is we continue to see M&A opportunities come across our desk, but honestly, I think we're just taking a wait and see approach there. It's got to be at the right price. It's got to be the right fit.

Russ Devendorf: Now I'd like to summarize our outlook for the third quarter and full year for 2024. We anticipate our third quarter home closings to finish between 725 and 775 homes at an average sales price between 340 and 345,000 with gross margin in the range of 26 to 26.5%. For the full year 2024, we are projecting total home closings between 2,650 and 2,800 homes and increase the 50 closings to the low end of our prior value.

Speaker Change: These are just more opportunities that we're seeing. So yeah, we're being opportunistic.

Speaker Change: We've seen and just the last thing I will say is we've you know, we continue to see M&A opportunities come across our desk, but

Speaker Change: Bye-bye.

Speaker Change: You know, honestly, I think, you know, we're just taking a wait-and-see approach there. You know, it's got to be at the right price. It's got to be at the right fit. You know, I think things are, you know, things aren't cheap. You know, again, I think both on the land side and the M&A side, I think things are...

Russ Devendorf: I think things aren't cheap. Again, both on the land side and the M&A side, I think things are expensive. But yeah, look, we're still getting our fair share of land deals.

Russ Devendorf: We expect our average selling price to range between $339,000 to $343,000 and our home clothing gross margin to finish between 26% to 26.75%, which is a 25 basis point increase to the low end of our prior guidance. Additionally, we continue to expect our FGNA expense ratio to be in the range of 13.75 and 14.25% for the full year, which includes approximately 420 basis points for internal and external sales commissions. We believe the primary risk to our projections are around our ability to maintain sales pace and bring our new communities and lots online.

Speaker Change: Things are expensive, but yeah, look, we're still getting our fair share of land deals.

Russ Devendorf: Okay, the best of luck. Thank you. Alright, thanks y'all, and there are no further questions at this time. I will now turn the call back over to Greg Bennett. Thank you. Thank you, everyone, for joining our quarterly call. Hope everyone has a great day, a great week, and this concludes today's conference call. You may now disconnect. Thanks for watching, and don't forget to like, share, and subscribe to

Speaker Change: Okay. Best of luck. Thank you.

Speaker Change: All right. Thanks, y'all.

Speaker Change: And there are no further questions at this time. I will now turn the call back over to Greg Bennett.

Greg Bennett: Thank you. Thanks everyone for joining on our quarterly call. Hope everyone has a great day, great week.

Russ Devendorf: As I have mentioned on prior calls, we continue to see some delays with municipalities on permitting and plots. Macro economic factors primarily around jobs, inflation and interest rates could also have them for seeing impacts to our numbers.

Speaker Change: And this concludes today's conference call, you may now disconnect.

Operator: With that, I'd like to turn the call over to the operator for instructions on Q&A. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad.

Michael Rehot: Our first question comes from the line of Michael Rehot with JP Morgan. Your line is open. Hi. Thank you for taking my questions. I was just hoping to maybe get some more granularity and an update on community town growth and how you're thinking about it as we go through the year and maybe any initial thoughts for next year. Thank you.

Russ Devendorf: Andrew, yeah, from a community count perspective, and I think we've stated this before, we expect to, and somewhere, maybe two or three more communities higher than where we're at at the end of the quarter, somewhere in the 70, probably 76 to 7980 range. So we'd expect it to grow a little bit. I mean, there's some communities that are coming offline just from exceeding sales. And then we're hoping to, again, bring some of our communities online on time or a little bit faster. We are experiencing, as I mentioned, some plat delays, but so that's where we would expect.

Russ Devendorf: And then into next year, we haven't really provided any guidance yet, but maybe on the next quarter, we'll give some updates on communities as well as kind of sales and closings for next year. Thanks, Russ.

Greg Bennett: And then maybe if we could drill down a little bit on your demand trends over the last few months, any kind of progression you can give us or how the sales page is coming through the door, maybe versus your expectations. Yeah, I'll take that one and our current trends are probably slightly all from from typical seasonality. We're still seeing a lot of demand the last few weeks have been good, although you've got the typical seasons with school starting.

Greg Bennett: We just had a storm move through, you know, a lot of our coastal, I mean, a lot of our Carolina divisions and had some interruptions with those sorts of things. So it's kind of hard to pinpoint some of that, but I think, I think seasonality is maybe just a little soft, but those trends are the same. As Greg mentioned, Houston got hit pretty hard with a storm during the quarter, but as you would expect, you can see absorption trended down a little bit.

Greg Bennett: When you looked at our monthly net sales through the quarter, April and May were actually about flat in terms of their sales. I think we were at 246 and 253 in May and then June tailed off a bit for the balance. So again, that's kind of your typical seasonality, but also I think there was some weather factors in there.

Ray: And your next question comes from the line of rough age or droughts, would think of America, your line is open. Hi, good morning, it's Ray. Thanks for taking my question.

Russ Devendorf: I wanted to ask on Devon Street in Houston, can you talk a little bit about what the margins are for that division compared to the legacy business and how you're seeing the progress there in terms of integrating them? Yeah, so to take the last part of it, integrations going as good as we could have expected, I think as we mentioned on last quarter, we had continued to kind of migrate systems, getting them into the Smith Douglas way of doing business and that has continued.

Russ Devendorf: I think as of today, we are totally 100% migrated onto our system. We've had our our team meetings out there. So again, we've continued to we've turned over the brand, right? So the brand was turned over pretty early. We are building out some of the legacy, you know, homes, you know, floor plans, but we've we've already started to integrate our models. We're doing more more of the Smith Douglas, you know, marketing, you know, CRM.

Russ Devendorf: So everything's on track and, you know, really a shout out to that team. I mean, they've been, you know, phenomenal. I think maybe we've lost one person, you know, in the last year. So we just hit our one year anniversary, but extremely, extremely great team and it's been a great acquisition for us. And I think they're going to exceed, you know, the closings that we had projected for them for this year.

Russ Devendorf: And then just in terms of margins, as good as we could have expected as well, they're they're hitting the mid 20s, you know, 25%, you know, gross margin. And I think that's consistent, you know, with with their legacy business and probably a little bit higher than we would have expected to be honest. I think because we were going to try and push a little more volume than they had done in the past.

Russ Devendorf: And we thought that was going to come a little more at the expense of margin, but yeah, it's been good. The first half of the year, the first quarter was great, you know, sales sales and demand was great. But I also think, you know, again, they followed a little bit of the typical seasonal pattern, you know, in the second quarter. But yeah, it's going well.

Ray: That's really helpful.

Russ Devendorf: And then you raised the low end of the gross margin outlook.

Russ Devendorf: You said, well, what's driving that increase? And what are you assuming for stick and brick costs and land inflation for the second half of the year? Yeah so we raised it because margins have been coming in better for our sales in second quarter so it's just really a function of we've been able to raise prices in excess of cost inflation and that's really more on the direct cost side. You know our land cost is really what's driving you know year over year land cost is what's driving the margin erosion right I think our land cost maybe it's it's about 300 basis points as a percentage revenue first is last year but that's that's the big driver I don't have the percentages in front of me I mean maybe you know we can talk offline but it's all in the land cost which is which is driving that margin erosion but as I mentioned our backlog our margin and backlog is about 26 percent so through the first half of the year I think we're what 26 and a half percent through the first six months and with backlog and 26 yeah I think you know that 26 to 26.75 is a pretty pretty safe range.

Ray: Thank you that's helpful. Sure.

Mike Doll: And your next question comes from the line of Mike doll with RBC capital markets your line is open. Hey thanks for taking my questions Russ maybe just follow up on on that comment on backlog margin they think coming out of the gate you know you've been giving a range you know plus or minus around where your current backlog margin sits and if I heard you correctly or if you're current backlog margins at 26 you're guiding 26 to 26 and a half percent for three queues so so you're not really necessarily assuming that you're not going to be able to do that.

Mike Doll: I think it's like incremental erosion at the low end maybe just help us understand kind of how you're thinking through you know whether it's mix or otherwise what's going to deliver in three queues versus that backlog margin. Yeah it's more mixed related I think you've got you know just the way it's trending I think you're you've got a little bit higher gross margin probably hitting in Q3 than Q4 if if I if I recall correctly so I think that's that's it's just more of a mix.

Mike Doll: And you know we're pretty we're pretty baked in terms of kind of you know trying to get to that low end closing number you know when you look at our closings plus our our backlog schedule to close this year and that assumes that you know nothing falls out right from a cancellation standpoint I mean we feel pretty good about getting to that 2650 you know we're getting to a point in the year where you know maybe maybe we've got another month or so of where we can sell and get to that. [inaudible] Okay, that's helpful.

Mike Doll: And then back to the comments that both you and Greg made around the demand trends. I want to make sure I'm clear. I think Greg, you talked about current trends. Below technical seasonality, then Russ, when you added your comments, he talked more specifically about April, May and June. So I wanted to clarify, Greg, when you're talking about current trends, is that what you've seen in July and August to date that you've referenced still being below technical seasonality?

Mike Doll: That's correct. Yeah, we're back closer to seasonality, but we, we, so our leading indicators are traffic and our lead generation. And it's, it's slightly below where we would expect triple seasonality. And that is current July and August numbers. Okay, appreciate that. Thank you both. Yep. Thanks, Mike.

Sam Reed: And your next question comes in the line of Sam Reed with Wells Fargo. Your line is open.

Sam Reed: Thanks, guys.

Sam Reed: I wanted to do a quick follow-up on Devon Street here. Just maybe talk through where cycle times today fit in Houston relative to your current core operations. And then maybe kind of help us bridge sort of a path to getting to something more consistent with your core business.

Greg Bennett: Thanks. Yeah, so Sam, thanks for the question. We, we, we're benchmarking right now all of our friends and our cycle time in Houston week. We had some legacy, some of the master playing communities where we had a little part of time changing product over that we've just got plugged up over the last, you know, month or so. And we've got all of the units now in the system. And probably over the next couple of weeks we'll be able to benchmark all the cycle times there.

Greg Bennett: There, there, you know, if I, if I'm guessing without putting numbers on it, we're probably in the mid-high seventies today. We're doing a great job there on cycle time, but we've now got schedules in place on everything. And our teams in place, we've launched those meetings. Tom and I've been in person there to their, their trade meetings. And as Russ said, things are going great with all the transitions. So that's, that's a matter of being able to set benchmarks moving forward. We would hope by the end of the year to, to be near our, our numbers set. If we look across all of our footprints today, we're in that high 50s, 58, 59 days cycle time.

Greg Bennett: No, thanks for having that helpful.

Sam Reed: And then one question I had just on mix here. I mean, there you guys predominantly built the order, but, you know, there is some spec in your business, you know, just kind of curious, you know, kind of how that spec mix looks into the second half of the year. Just mindful of, you know, potential incentives on those facts, so curious what the mix looks like.

Russ Devendorf: Thanks. The, you know, our spec, so we've always had some spec, and I don't know that it's that much different than typical. So, you know, we operate and focus as a manufacturing business. We make more, we lose less and full capacity if we get a stated slot and we don't have a pre-celled ready, we'll start at home. As a percent of whip, I think we are at about 3% of our homes are at drywall that are spec home.

Russ Devendorf: So, it's a small sampling, I think the most of those we are able to get moved and so prior to, and we call it a line in the sand and when we look at it around drywall that is still, we can convert that sale, it still closes on its original schedule time. Yeah, the other thing Sam, I would add is, and sitting here today, I'm just looking at the numbers we've got as we had, we only had 45 finished specs and that was pretty evenly distributed through our divisions.

Russ Devendorf: We track spec count by community every week, we kind of look at that and see what the sales trends are, but to Greg's point, I mean, we're trying to keep the machine going and we'll start, you know, adjusting price to meter, you know, pace to get, you know, for our teams kind of that one a day. And then when you look at specs, so the one thing to keep in mind, so specs are up year over year, you know, probably just maybe about, it's about 200 versus last year.

Russ Devendorf: Now, half of that, over half of that comes from Houston, so you got to remember Houston's probably more of a spec market and in that market. And primarily because you're competing with, we're competing, I think it's about 70% of our communities are on master plans where you've got four or five other builders, and it's just, it's just kind of the way you've got to compete there. So we've got a little more spec in Houston, we are, you know, is Greg pointed out, I mean, we're getting them integrated the Smith Douglas way of doing things.

Russ Devendorf: We are focused more on trying to get them a little more presale, but I think specs in Houston are always going to be kind of part of that business when you compare it to our other markets. And for one note, I add there to a spec home for us becomes a spec the day we identify the need to go into permitting. So we identify within our system very early, if it's got to be a spec because a lot of the long gated permitting cycles. That's right.

Russ Devendorf: No guys, that's very helpful. Thanks so much. Sure. Thanks.

Jay Mccanless: And your next question comes from the line of Jay McCannless with web of securities. Your line is open. Okay.

Russ Devendorf: Good morning, everyone. So Russ talking about the gross margin, I think you said probably. The tire and three key versus four Q, I guess is that all land costs or are you all expecting maybe a little more competitive pressure from some of the larger builders going into your end. Okay. I think that's the growth margin on our closings, right? So a lot of that's just baked so it's just kind of mixed and just timing of what's going to close and I think that's just a reflection of where we've just seen.

Russ Devendorf: So those closings, the margins that's going to close in the back half of the year, you think that was sales that was kind of end of first quarter in the second quarter. So it's just, I think it's just where we've seen costs, you know, it's just as we move through communities just in terms of mix, it's mostly land costs. So it's really just kind of, you know, just more timing of what's closing, you know, if that answers your question, it's I don't think you can glean anything into, you know, how that translates into what we think our sales necessarily are going to be or kind of what we think in terms of future discounting.

Russ Devendorf: And that's just more of, you know, what our backlog is showing for sales that we've already, you know, made. So what I guess, yeah, that makes sense because I'm assuming that's when mortgage rates are higher, etc. And you do a little more on the bottom side. I guess you talk about what you're having to do for incentives now. And what are you seeing from some of the larger builders? Yeah, I would say in Greg can jump into, but it's pretty consistent with what we've seen in the first half of the year or, you know, first, first quarter, you know, we're still offering kind of a your choice incentive for our buyers.

Russ Devendorf: The incentive, you know, percentage hasn't changed too much. And it's I'd say most there still have still been taking a credit towards closing costs versus actual buy downs. We did a, we did a forward in one of our markets where, you know, we just did a small, you know, maybe a couple million dollar forward contract in buying a rate down. And it took us, I think a couple of months to actually to actually fill it because our buyers were, like I said, taking more of that closing cost incentive.

Russ Devendorf: And I believe it's, you know, a lot of folks just feel like, hey, let me take the credit now because ultimately I'm going to refi, you know, my mortgage in a couple of years, you know, because the expectation is for rates coming down. Yeah, that's accurate.

Russ Devendorf: Very good morning. And I would say, you know, our incentives are, you know, one and a half, two percent range on average.

Greg Bennett: And then just the last question I had thinking about Devon Street and Houston, I guess how, given that you've passed the one year mark there, I guess, how comfortable are you with potentially looking at other expansions and the feel like with our team, blurring, you've had so far that you could implement this into another existing organization. I think the implementation has gone great and I don't have any doubt or reservations about how well this is going to continue to go with Houston.

Greg Bennett: I think, you know, now is a value waiting up. The growth within that market and the timing for when we may step out and expand beyond Houston there but there's no immediate need to look at any of those types of transactions. I think if we stay in the past, our greatest opportunity is in our current divisions and expanding as we have with our land across all those markets.

Greg Bennett: Great. Thanks guys for sharing.

Operator: And as a reminder, if you'd like to ask a question, please press star in the number one on your telephone keypad.

Alex Barron: Your next question comes from the line of Alex Barron with Housing Research Center, your line of open. Yes, good morning. Thank you gentlemen. I wanted to ask about the Houston division, you know, orders were 149 in the first quarter, 98 in the second quarter. Can you talk a little bit about which of those two is more likely to be a run rate right now and what I guess what happened from one quarter to the next.

Alex Barron: Yeah, look, I think it's, you know, in Houston, I still think it's kind of seasonal trends. So, you know, the first quarter was probably better than we expected, but I think it just kind of season and now you're getting into, you know, second quarter, you kind of hit summer months, you know, school starting to get out. So, I don't, I can't sit here and say that it wasn't, you know, just following a normal trend.

Alex Barron: So, we did see a little bit of an uptick in cancellations in Houston in second quarter, but I can't say if that's, you know, just, you know, anything more than just a little bit of a blip or just kind of typical. Again, this was our first year, our first, you know, first half year with, with Houston, ourselves. So, you know, we're still just kind of, you know, feeling, feeling, feeling out the market, seeing, seeing kind of how, how we, how we fit there. But, no, I think everything, like we said, is going real well.

Russ Devendorf: Better than we had anticipated, and I think just from our internal projections, as we look for the full year in Houston, I think they're going to exceed our internal projections. Okay, great. And as far as your land position, I mean, it's been going up pretty, pretty aggressively. Do you feel like you're just seeing opportunities right now or you're just trying to get ahead of expected growth? Yeah, we're, we're seeing, as I mentioned, we are, our corporate investment committee is, is very busy.

Russ Devendorf: We're seeing, you know, anywhere from one to four or five deals. A week that the divisions are presenting to us. So we're, we're very active. I mean, the market is still very competitive, right? I mean, we're, but we are getting our fair share of deals. As we mentioned during the road show, you know, one of our main goals here with raising the capital is to continue to drive scale through the operations, you know, specifically outside of Atlanta.

Russ Devendorf: You know, Atlanta, we're top three builder in Atlanta. So, you know, we've been focusing on really driving scale and other markets. But we're seeing, you know, a lot of great deals in Atlanta. I mean, just across the footprint, as we mentioned on the last call, you know, we started pushing up into Chattanooga. So we've put, I think we've put another couple of deals under contract in Chattanooga. So we continue to push, push north there.

Russ Devendorf: So there's some more opportunity. You know, with the transition, we just, you know, we, we mentioned with, with Eddie, you know, our, our VP of finance that just transitioned into a central Georgia, a DP role, you know, newly created divisions. So we're, we're looking to, you know, further expand our footprint out from Atlanta into, you know, more middle Georgia. So, you know, these are just, you know, more opportunities that we're, we're seeing.

Russ Devendorf: So yeah, we're, we're being opportunistic. We've seen and, and just the last thing I will say is we've, you know, we continue to see M&A opportunities come across our desk, but, you know, honestly, I, I think, you know, we're just taking away and see approach there. You know, it's got to be at the right price. It's got to be at the right fit. You know, I think things are, you know, things aren't cheap. You know, again, I think both on the land side and the M&A side, I think things are, things are expensive. But yeah, look, we're, we're still getting our fair share of, of, of a land deal.

Russ Devendorf: Okay, best of luck. Thank you.

Operator: Alright, thanks y'all.

Greg Bennett: And there are no further questions at this time.

Greg Bennett: I will now turn the call back over to Greg Bennett. Thank you. Thanks everyone for joining on our quarterly call.

Greg Bennett: Hope everyone has a great day, a great week.

Operator: And this concludes today's conference call. You may now disconnect.

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